Being self-employed has a lot of rewards, including the freedom of being your own boss, job security, and the ability to use some of your expenses to reduce your tax obligations but what expenses can you claim?
The following is only a sample of expenses that can be claimed as business expenses, it is not a full list and they differ depending on each type of business.
What expenses can you claim?
This includes advertising in any Canadian medium including finder’s fee
You can claim an account receivable amount as bad debt in a year if it was determined that it is not collectible, and the account receivable amount was included in income
Business start-up costs
Initial expenses associated with starting the business can be claimed including interest and fees on money borrowed to start the business
Business taxes, dues, and licenses
You can claim license fees paid to the city or professional organization. Club memberships such as recreation, or sporting activities are not allowed.
You can deduct insurance premiums paid on buildings, machinery, work space, and liability insurance. Motor vehicle insurance is claimed as motor vehicle expenses.
Interest and bank charges
You can claim business bank account charges, interest incurred on money borrowed for business purposes or to acquire property for business purposes. There are limits on the interest claimed on money borrowed to buy a passenger vehicle which will be covered under motor vehicle expenses. You cannot claim interest on money borrowed for personal purposed or to pay overdue income taxes.
Fees, penalties, or bonuses paid for a loan
You can deduct the fee paid to reduce the interest rate on your business loan, on penalty or bonus that a financial institution charges you to pay off a loan before it is due
Legal, accounting, and other professional fees
You an deduct the fees incurred for external professional advice or services, including consulting fees. You can deduct accounting and legal fees you incur to get advice and help with keeping your records, preparing and filing income tax and sales tax (GST/HST).
Legal and other fees incurred to buy a capital property such as a building, machinery, or a boat. Instead, you add these fees to the cost of the property.
Maintenance and repairs
You can claim cost of labour and materials for minor repairs or maintenance done to business property. Capital repairs will be claimed as capital cost allowance (subject to depreciation), you cannot claim value of your own labour.
Maintenance and repair costs related to business use of work space in your home will be claimed under business use of home expenses.
Meals and entertainment
The maximum amount you can claim for food, beverages, and entertainment expenses is 50% and these expenses has to be business related, such as meeting with suppliers and customers. Cost of meals when you travel for work or go to a convention, conference, or similar events can be expensed as travel expense.
You can claim meal and entertainment expenses for office party or similar event during which you invite all your employees with a limit of six such events per year.
Entertainment expenses include tickets and entrance fees to an entertainment or sporting event, gratuities, cover charges, and room rentals for events.
You can deduct cost of office expenses including small office supplies. Office equipment such as chairs, desks, filing cabinets, and furniture are capital items and will be subject to depreciation (capital cost allowance).
You can deduct property tax paid on property used in your business. Property tax related to business use of work space in your home will be claimed as business use of home expenses.
You can deduct rent paid for property used in the business
Salaries, wages, and benefits
You can claim and deduct salaries paid to employees. Do not include owner’s drawing or CPP amounts for self-employed un-incorporated sole proprietors or partners. You can include employer’s share of CPP and EI amounts for employer’s salaries and wages, also you can include WSIB and EHT payments – if applicable.
You can deduct cost of items used in the course of operating a business
Telephone and utilities
You can claim expenses paid for telephone and utilities, such as heating, electricity, water, and cable, if you incurred these expenses to earn income. Utilities expenses related to business use of work space in your home have to be claimed under business use of home expenses. Cell phone expenses – you can only claim the portion of cell phone expenses related to business use.
You can deduct travel expenses incurred in earning business income and professional income. Travel expenses include; public transportation fares, hotel accommodations, transportation, and meals.
If the motor vehicle is used exclusively for your business, you can deduct all of the expenses related to that vehicle including; gas, insurance, repair costs, parking, and other related expenses. If you use your vehicle for both business and personal, you can deduct a percentage of those expenses based on the amount of business use. A log of total annual mileage of your vehicle must be kept in a logbook, CRA can ask for this logbook to substantiate those expenses.
Allowed motor vehicle expenses:
- Licence and registration fees
- Fuel and oil costs
- Interest on money borrowed to buy a motor vehicle – amount of interest is the lower of the total interest paid during the fiscal period or $3,650
- Leasing costs – you can deduct a maximum of $800 + HST per month, which works to a maximum of $9,600 in allowable leasing expenses per year
- Depreciation (Capital Cost Allowance – CCA)
Please note that the above information is intended as a general source of information and should not be considered as specific source of legal or financial advice. Rules and regulation are subject to change at any time, as we at MMS Accounting & Bookkeeping Services will always try to provide you with up to date information. Please call our office at 647.749.8798 or email us at firstname.lastname@example.org for further information.